The rupe strengthened further by 6 paise to close at 65.20 against the US dollar on the back of positive macroeconomic data and upbeat local equities.
Easing global trade war fears after US President Donald Trump hinted that military action in Syria might not be imminent along with some consolidation in global crude prices kept forex market sentiment buoyant.
A number of favourable factors, including encouraging growth-inflation dynamics driven by high industrial growth and lower inflation further aided overall trading mood.
"Economic data and continued inflows from foreign investors supported the domestic currency," Anand James Chief Market Strategist at Geojit Financial Services said.
Foreign investors had infused around USD 100 million in capital markets yesterday.
Reflecting improvement in the economic situation, industrial production grew by a healthy 7.1 per cent in February while the key retail inflation slipped to a five-month low of 4.28 per cent in March, official data showed yesterday.
On the energy front, crude oil prices backtracked on the perceived easing of Syrian tension and higher US crude output data.
Brent crude, an international benchmark, was trading marginally higher at USD 71.76 a barrel in early Asian trade.
Rupee opened on a backfoot at 65.31 per dollar from overnight close of 65.26 at the inter-bank foreign exchange (forex) market on stray dollar demand from importers.
However, the local unit made a strong recovery in mid-afternoon deals to hit session's high of 65.18 before ending at 65.20, showing a gain of 6 paise, or 0.09 per cent.
For the week, the Indian unit dropped sharply by a staggering 23 paise against the US dollar.
The RBI, meanwhile, fixed the reference rate for the dollar at 65.2226 and for the euro at 80.3412.
The 30-share BSE Sensex rose 91.52 points to end at 34,192.65, while the broader NSE Nifty gained 22 points to 10,480.60.
Globally, the dollar struggled to gain ground on Friday. The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.50.
In the cross currency trade, the rupee rose further against the euro to finish at 80.31 from 80.53 and also edged higher against the Japanese yen to settle at 60.55 per yens from 60.93 yesterday.
The home currency, however remained under immense pressure against the pound sterling and closed at 92.97 from 92.71 earlier.
In forward market today, premium for dollar showed a mixed trend due to lack of market moving factors.
The benchmark six-month forward premium payable in August eased to 95.50-97.50 paise from 96-98 paise, while the far-forward February 2019 contract edged up to 216-50-218.50 paise as against 214-216 paise previously.